Foreclosures and short sales in Northern Virginia and Washington DC are becoming more prevalent now-a-days as well as in most of the country. As a result of the rise in delinquencies, short sales have become popular as a solution for homeowners who need to get out of homes as trouble-free as possible.

A short sale becomes an option when the homeowner cannot afford to make the payments on their loan due to whatever circumstance. In a nutshell, the lender agrees to accept less than the total amount owed. In reality, the lender agrees to release the home from the lien of the Deed of Trust for less money than stated in the Trust. Not all lenders will consider short sales if it makes more financial sense to foreclose.

Lately, the short sale epidemic has resulted from adjustable rate mortgages (ARM’s) increasing with the combination of depreciating home prices. During the housing craze, many home buyers took out 100% financing, interest-only ARM loans. If a buyer took out an interest only loan without making a down payment, then essentially none of the principle amount owed on the home has been paid.

Now with the decline of home prices, these ARM’s are adjusting (higher), which consequently increases the mortgage payment. The only way to stop the adjusting rate is to refinance the loan into a fixed rate, which typically costs a few thousand dollars.

For example, lets say you bought a home two years ago for $500,000, and now it will appraise for only $420,000. If you need to refinance into a fixed loan, then you will have to put down $80,000 ($500,000-$420,000) + the cost of refinancing. Basically, you will owe the difference between what the home is currently worth, and the total amount still owed on the mortgage. In this case your only options would be:

1) Continue to pay the increased mortgage (in most cases the rate continues to adjust over a certain time period, ie. every month or 6 months, etc)

2) Work out a deal with your bank, ie. defer payments, work-out program, deed-in-lieu

3) Short Sale

4) Foreclosure

When homeowners decide that they can no longer stay in their home, our team comes in to help facilitate a short sale rather than having the home go through foreclosure. These days, lenders, wanting to avoid costly foreclosures, are more inclined to accept a short sale in which the loan balance exceeds the market value of the house. The short sale ends by agreement with the lender to approve the sale of the property to a buyer. This consequently results in an escrow, documentation and then a short sale consummation. 

One of the ultimate benefits is that as long as the home owner makes the mortgage payment up until the consummation of the short sale, their credit will NOT be impacted nearly as much as a foreclosure would on their record.

For lenders, there are several benefits for the short sale. The homeowner less likely to become disgruntled and tear apart the house. The lender doesn’t have to spend additional money on holding costs and wasted time tying up funds that could be lent out. If market conditions have deteriorated, then recapturing the debt at a foreclosure sale is unlikely. Lenders aren’t in the business of selling real estate, they are in the business of lending money… the last thing they want is to go through foreclosure proceedings if it doesn’t make sense financially.

If the property does go into foreclosure, additional fees will be accumulated and later reported by the lender to the IRS as losses. The foreclosure usually stays on your credit report for 7 years and you most likely won’t be able to get another mortgage with a foreclosure on your credit. The lender may also pursue the homeowner for a “deficiency judgment” (the difference between the highest bid at sale and the amount owed).

If the homeowner is proactive and contacts the lender before becoming delinquent, they have a much better chance of a successful short sale. Only after the homeowner has missed a few payments may it be too late for a short sale.

When it comes time to negotiate for a short sale, getting the necessary paperwork and tracking down the right people to negotiate with can be a very difficult task. Whether intentionally or unintentionally, getting to the right people to discuss the possibility of a short sale, seems to be a challenge in which there is no easy answer.

Unless you have a lot of free time to dedicate, having a designated short sale agent (usually a Realtor® or attorney) to assist you in selling your home and consult directly with your lender is typically the best bet. Especially when time is of the essence, you must be available to quickly respond to, and provide the lender with all of their requests along with showing, marketing and selling your home. From beginning to end, short sales are many times a 2-4 month process and can be a very stressful time for the homeowner.

It’s also important to understand that you may face a 1099 in the future, meaning you could be taxed as income on the amount of the lender’s loss. However, once an agreement is reached, the short sale can be the best opportunity to get out of a very bad situation with the least amount of harm for all parties.

HomeZill agents work closely with homeowners in Northern Virginia and Washington DC throughout the short sale process. We provide the homeowner with our expertise in negotiating, identifying the lender contact to negotiate with, and compelling the lender to agree to the short sale. Most of the time, lenders will not disclose the minimum acceptable price for the short sale until an offer is submitted and reviewed. Our real estate professionals have extensive knowledge of the short sale process and will use high-impact marketing strategies in order to generate an offer as quickly as possible.

If your mortgage interest rate is due to adjust in the near future and you’re not going to be able to afford the payments, be PROACTIVE and contact your lender ASAP to see what your options are. Your credit alone is way too important to ignore the situation at hand. If the lender mentions the short sale option, don’t delay for too long (time is of the essence!). When you’re ready to get the ball rolling, simply fill out the HomeZill Express Seller questionnaire. You must register first (it’s free) before getting started if you haven’t already. A short sale agent in VA or DC will contact you soon to begin the short sale process.

Feel free to contact David at 1-888-998-9455 x801 or david@homezill.com to speak with a ReMax short sale Realtor in Northern Virginia or Washington DC. To receive a weekly foreclosure list of homes as properties come on the market, enter your email address at the top of the page.

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